Sunday, July 24, 2016

The Historical Context of Mercantilism, Republicanism, Liberalism and Neoliberalism

After the financial crash of 2007-2008 caused an economic collapse, and after it became clear that the Bush and Obama administrations were unwilling to actually investigate, prosecute and incarcerate financial and banking executives for the crimes committed, many politically active people in USA and other countries began to dig deep into the philosophy of political economy that had allowed the financial industry to occupy such an overwhelming position of dominance over the rest of the economy.

The philosophical wreckage they have been excavating has generally come to be called "neoliberalism." It is a word which confuses many people, because it serves as a name for a set of economic beliefs and policies which are more easily recognized as being associated with political conservatism and libertarianism: the opening of the Wikipedia entry on "neoliberalism" is accurate enough on these economic beliefs and policies, which "include extensive economic liberalization policies such as privatization, fiscal austerity, deregulation, free trade, and reductions in government spending in order to enhance the role of the private sector in the economy." Generally, neoliberals believe that markets with untrammeled pricing mechanisms are a much fairer and more efficient means of allocating society's resources than any level of government oversight and intervention.

Neoliberals themselves actively seek to add to the confusion by denying they have a shared, coherent philosophy. A good, recent example—and from someone who is a self-professed "liberal" not a conservative—was this comment on DailyKos this past week: “Neoliberalism is not actually a thing.” It is exactly what neo-liberals themselves say. It is a smokescreen, intended to confuse and stymie inquiry. Philip Mirowski, a historian of economic thought at Notre Dame, and co-editor of one of the best expositions of neo-liberalism (The Road from Mont Pelerin: The Making of the Neoliberal Thought Collective, Harvard University Press, 2009; now available in paperback), took on this deception earlier this year in a paper entitled, The Political Movement that Dared not Speak its own Name.

Mirowski’s response to the severe reaction of neoliberals to his paper was posted to Naked Capitalism in April 2016: Philip Mirowski: This is Water, or Is It the Neoliberal Thought Collective?
I do not recommend anyone go read the above links right now, unless you are already familiar with the debate over neoliberalism and are prepared for some hefty intellectual lifting. For those people unfamiliar with the term “neoliberalism” and seeking to understand how it differs from liberalism, I recommend this excellent review of another book, including many of the comments in the thread, on
Naked Capitalism in March 2015: Comments on David Harvey’s “A Brief History of Neoliberalism”.

These are all excellent discussions and expositions of neoliberalism. Also excellent is the work of Corey Robin. See, for example, When Neoliberalism Was Young: A Lookback on Clintonism before Clinton, from April 2016, and Robin's response to critics. Robin puts his finger on a diseased main artery in our political discourse today, when he writes neoliberals, even those, such as Barack Obama and the Clintons, who refuse to call themselves neoliberals,
would recoil in horror at the policies and programs of mid-century liberals like Walter Reuther or John Kenneth Galbraith or even Arthur Schlesinger, who claimed that “class conflict is essential if freedom is to be preserved, because it is the only barrier against class domination.”
My own conclusion thus far is that much confusion will persist until neoliberalism is understood in the historical context of USA political economy, along with three other terms crucial to understanding this history:





My firm conviction is that people cannot, and do not, understand what an insidious, and potent, danger neoliberalism thought is, until they understand republicanism. And in political economy, you also need to understand mercantilism, and how the USA theory and practice of republicanism interacted with, and changed, mercantilism. As for liberalism, for now suffice it to note that contemporary neoliberal  thought has more to do with economic liberalism, than it does political liberalism. In fact, to some extent—and at the risk of my only adding further to the confusion—it may be useful to assert here that there is a strain of European political liberalism that developed in opposition to the USA theory and practice of republicanism. This strain of European political liberalism resulted in granting the right to vote to most subjects of polities which remained monarchies, as an expedient for the necessity imposed by modern warfare for mass mobilization of a country's male population. The obvious period is that of World War One. In USA, at similar type of political liberalism arose in response to the acquisition and consolidation of monopolistic economic power by the trusts led by John D. Rockefeller, the Morgan banking interests, and other misnamed, so called "captains of industry" of the Gilded Age.

In my Introduction to my annotated abridgement of The Power to Govern: The Constitution -- Then and Now, by Douglass Adair and Walton H. Hamilton (W.W. Norton & Co., New York, NY, 1937, available on Amazon as a Kindle ebook, here), I write that the creation the American republic and its Constitution must be understood in the
context of the shift from the economic and political systems of feudalism, to mercantilism and modern nationalism. The ecclesiastical and warlord authoritarianism of feudal Europe was being reluctantly and painfully dragged off the stage of world history, making way for national states. In the process, these national states developed—without, Hamilton and Adair note, much theoretical foundation—an accretion of laws and policies generally called mercantilism, intended to ensure economic activity added to, rather than detracted from, a nation’s wealth and power. Hamilton and Adair present the evidence that the Framers were entirely familiar with mercantilist policies, and that the intent behind the Constitution was most emphatically not laissez faire and unregulated market capitalism, but a careful and deliberate plan to ensure that all economic activity was channeled and directed to the promotion of the general welfare and national development….
The words “mercantilist” and “mercantilism” are generally used whenever government powers are used to promote a state’s economic powers. By specifying in the Constitution that government powers are used to promote a state’s economic powers in promotion of the general welfare, the American republic made a sharp break from European mercantilism, in which the welfare of a sole monarch or small group of oligarchs was often conflated with the general welfare of a state or nation….
As a body of economic thought, liberalism developed as the economic and political philosophy of a revolt by a rising middle class against the power and privileges of European ruling oligarchs and monarchs, who used their connections and influence at royal courts to gain economic monopolies and other privileges (in other words, the system of mercantilism.) The intent of classical economic liberalism was to sweep away, or at least greatly circumscribe, the power of these oligarchical and monarchical elites and states to make room for greater economic freedoms and property rights for the rising middle class.

In this sense, the culmination of liberalism was the creation of the American republic,  However—let me stress again—it is crucial to note that under the Constitution of the new American republic, economic freedoms and property rights were subject to the Constitutional mandate to promote the general welfare.

In advanced industrial economies, the way a sovereign nation-state promotes and protects the general welfare is by imposing environmental, workplace, and consumer regulations on economic activity.
This is where we should discuss the concept of republicanism. Remember, the United States is established as a republic, not as a democracy. But what does that mean?

In a monumental book that is crucial to understanding the historical and cultural context we are here examining, The Creation of the American Republic, 1776-1787 (Chapel Hill: University of North Carolina Press, 1969), Gordon Wood wrote, "Republicanism meant more for Americans than simply the elimination of a king and the institution of an elective system. It added a moral dimension, a utopian depth, to the political separation from England - a depth that involved the very character of their society."

Wood continues:
To eighteenth-century American and European radicals alike, living in a world of monarchies, it seemed only too obvious that the great deficiency of existing governments was precisely their sacrificing of the public good to the private greed of small ruling groups.... The sacrifice of individual interests to the greater good of the whole formed the essence of republicanism and comprehended for Americans the idealistic goal of their Revolution.... "The word republic," said Thomas Paine, "means the public good, or the good of the whole, in contradistinction to the despotic form, which makes the good of the sovereign, or of one man, the only object of the government." 

(The first two thirds of "Republicanism," Chapter II from Gordon Wood's The Creation of the American Republic, has been posted online here. I highly recommend it as a very productive and uplifting Sunday read. Also, here is the Wiki-summary of the entire book.)

In the closing decades of the 1700s, there was general agreement that for republicanism to work as a system of government, the citizens of the republic needed to be virtuous. There were two types of virtue: private virtue and public virtue. Political theorists of the time insisted that the two were intertwined, but for sake of brevity, we need only look at public virtue, which simply meant that an individual citizen was willing to suppress his or her own self-interest when the greater good of society required it.

What this meant in practice was that individuals must submit to the authority of the state out of the self-abnegation which flowed from understanding—and desiring—that the consideration the general welfare must rule supreme. This required that the citizens develop an entirely different character than subjects in a monarchy, in which obedience to the state flowed from the awe and fear of the immense, regal power of the monarch and his supporting military apparatus. As Wood explains, loyalists warned that  
by resting the whole structure of government on the unmitigated willingness of the people to obey, the Americans were making a truly revolutionary transformation in the structure of authority. In shrill and despairing pamphlets [the Tories] insisted that the [Revolutionaries] ideas were undermining the very principle of order. If respect and obedience to the established governments were refused and if republicanism were adopted, then... "the bands of society would be dissolved, the harmony of the world confounded, and the order of nature subverted." [The tories insisted that ]The principles of the Revolutionaries  were directed "clearly and literally against authority." They were destroying "not only all authority over us as it now exists, but any and all that it is possible to constitute." The Tory logic was indeed frightening. Not only was the rebellion rupturing the people's habitual obedience to the constituted government, but by the establishment of republicanism the [Revolutionaries] were also founding their new governments solely on the people's voluntary acquiescence. And, as Blackstone had pointed out, "obedience is an empty name, if every individual has a right to decide how far he himself shall obey." [Which of course, becomes the issue in the Civil War eight decades later.—AKW]
Wood points out that the Revolutionaries did not actually desire to do away with governmental and social authority, only to supplant what motivated obedience to them by changing the very character of the people, so that the motivating force came from within each citizen, instead of from outside.
The Revolution was designed to change the flow of authority-indeed the structure of politics as the colonists had known it - but it was in no way intended to do away with the principle of authority itself. "There must be," said John Adams in 1776, "a Decency, and Respect, and Veneration introduced for Persons in Authority, of every Rank, or We are undone."  

....In a monarchy each man's desire to do what was right in his own eyes could be restrained by fear or force. In a republic, however, each man must somehow be persuaded to submerge his personal wants into the greater good of the whole. This willingness of the individual to sacrifice his private interests for the good of the community - such patriotism or love of country - the eighteenth century termed "public virtue." A republic was such a delicate polity precisely because it demanded an extraordinary moral character in the people. Every state in which the people participated needed a degree of virtue; but a republic which rested solely on the people absolutely required it... The eighteenth-century mind was thoroughly convinced that a popularly based government "cannot be supported without Virtue." Only with a public-spirited, self-sacrificing people could the authority of a popularly elected ruler be obeyed, but "more by the virtue of the people, than by the terror of his power." Because virtue was truly the lifeblood of the republic, the thoughts and hopes surrounding this concept of public spirit gave the Revolution its socially radical character - an expected alteration in the very behavior of the people, "laying the foundation in a constitution, not without or over, but within the subjects."
Wood and other historians have written that the adoption of the Constitution came about because many Americans—most especially the leaders of the Revolution—were increasingly horrified at the spectacle of self-interest dominating the work of all the state legislatures. The republican public virtue which had called forth the sacrifices of the Revolutionary War, appeared to be ebbing, and there was a serious debate over whether Americans remained virtuous enough for self-government to survive. (See Wood, The Creation of the American Republic, Chapter Ten, “Vices of the System.”) Note that this perceived diminution of virtue focused not only on the personal corruption of individual state legislators, but also on how the various state legislatures consistently and repeatedly placed state and regional interests ahead of the national interest.

The most pronounced social effect of the Revolution was not harmony or stability but the sudden appearance of new men everywhere in politics and business. "When the pot boils, the scum will rise:' James Otis had warned in 1776; but few Revolutionary leaders had realized just how much it would rise....

Everywhere "Specious, interested designing men:' "men, respectable neither for their property, their virtue, nor their abilities:' were taking a lead in public affairs that they had never quite had before, courting "the suffrages of the people by tantalizing them with improper indulgences." Thousands of the most respectable people "who obtained their possessions by the hard industry, continued sobriety and economy of themselves or their virtuous ancestors" were now witnessing, so the writings of nearly all the states proclaimed over and over, many men "whose fathers they would have disdained to have sat with the dogs of their flocks, raised to immense wealth, or at least to carry the appearance of a haughty, supercilious and luxurious spendthrift." "Effrontery and arrogance, even in our virtuous and enlightened days:' said John Jay "are giving rank and Importance to men whom Wisdom would have left in obscurity."....

The republican emphasis on talent and merit in  place of connections and favor now seemed perverted, becoming identified simply with the ability to garner votes....

The self-sacrifice and patriotism of 1774-75 [had] seemed to give way to greed and  profiteering at the expense of the public good. Perhaps, it was suggested, that peculiar-expression of virtue in those few years before Independence had been simply the consequence of a momentary period of danger. At one time public spirit had been "the governing principle and distinguishing characteristic of brave Americans. But where was it now? Directly the reverse. We daily see the busy multitude.engaged in. accumulating what thy fondly call riches, by forestalling [buy up goods in order to profit to achieve a monopoly position and impose an artificially high price], extortioning and imposing upon each other... Everywhere "Private Interest seemed to predominate over every Consideration that regarded the public weal.
The leaders who later became known as Federalists assembled in the Constitutional Convention, and cobbled together a framework of government of checks and balances intended to safeguard the republic against both the machinations of a tyrant, and the passions of the masses. I think the left is making a huge, tragic mistake by focusing an the founders’ fear of democracy, and condemning the founders as mere elitists. I would point to Trump and the Republican Convention as an example of exactly why the Founders sought to curb the power of both a tyrant, and the people. I agree with Ian Welsh that Trump just might get elected, because Hillary and Democratic establishment behind her refuse to acknowledge the economic devastation caused by their neoliberalism over the past four decades. So, if Trump gets elected, it is going to be the Founders' framework of checks and balances we are going to desperately seize hold of to try and prevent Trump from going to the very end that his supporters want him to go to. Will lefties come to appreciate the Founders' concerns then? A few will, but I think most will not.

But, back to American history. So, we get the republic, and it is generally understood that for republican self-government to work, the people with public virtue must lead the government. This is why George Washington was elected President unanimously twice by the electoral college. Note that by the time of Washington’s second election to President, in 1792, the political fight between the Federalists, led by Hamilton, and the anti-Federalists (soon to be called Republicans), led by Jefferson and Madison, had broken into the open, but both factions supported Washington for President, because only he was perceived to be virtuous beyond question. (In his second term, Jefferson and Madison led a campaign of vitriol and lies against Washington that is truly astonishing, accusing Washington of being a mere dupe of Hamilton, and surrounding himself in regal splendor intended to prepare Americans’ sentiments for an abandonment of republicanism and its replacement by a monarchy. And this, while Jefferson continued to serve as Vice-President.)

So what happens is the very idea of public virtue comes under attack. As Wood writes:
In these repeated attacks on deference and the capacity of a conspicuous few to speak for the whole society-which was to become in time the distinguishing feature of American democratic politics - the Antifederalists struck at the roots of the traditional conception of political society. If the natural elite, whether its distinctions were ascribed or acquired, was not in any organic way connected to the "feelings, circumstances, and interests" of the people and was incapable of feeling "sympathetically the wants of the people," then it followed that only ordinary men, men not distinguished by the characteristics of aristocratic wealth and taste, men "in middling circumstances" untempted by the attractions of a cosmopolitan world and thus "more temperate, of better morals, and less ambitious, than the great," could be trusted to speak for the great body of the people, for those who were coming more and more to be referred to as "the middling and lower classes of people." The differentiating influence of the environment was such that men in various ranks and classes now seemed to be broken apart from one another, separated by their peculiar circumstances into distinct, unconnected, and often incompatible interests. With their indictment of aristocracy the Antifederalists were saying, whether they realized it or not, that the people of America even in their several states were not homogeneous entities each with a basic similarity of interest for which an empathic elite could speak. Society was not an organic hierarchy composed of ranks and degrees indissolubly linked one to another; rather it was a heterogeneous mixture of "many different classes or orders of people, Merchants, Farmers, Planter Mechanics and Gentry or wealthy Men. "In such a society men from one class or group, however educated and respectable they may have been, could never be acquainted with the "Situation and Wants" of those of another class or group. Lawyers and planters could never be "adequate judges of tradesmens concerns." If men were truly to represent the people in government, it was not enough for them to be for the people; they had to be actually of the people. "Farmers, traders and mechanics . . . all ought to have a competent number of their best informed members in the legislature " 
The anti-Federalist basically argue that no individual can ever set aside their own self-interests to achieve the level of public virtue (disinterest is a key word to look for if you read accounts of this period) required to govern the republic. Well, if the leaders of government are just as selfish and self-interested  as you and I, we are therefore just as capable of governing as they are, and all this talk about the leaders being virtuous is a deception.

But note what happens here: this rejection of republican civic virtue opens the door to the ideas of British East India Company apologist Adam Smith, that “the market” is a more fair arbiter of clashing interests than the government can ever be. (Let me note here that Hamilton explicitly repudiated and rejected Smith’s ideas.)

So, in this historical context, neoliberalism is a revolt against the very heart of the republican philosophy of the American republic. Neoliberalism is a philosophical insistence that public virtue is a dangerous encumbrance on the "animal spirits" of modern capitalism—never mind that nowhere in the USA Constitution is "capitalism" mentioned, or any particular economic structure mandated. (Back in 1982, the American Enterprise Institute had a forum and published a book How Capitalistic is the Constitution? All the contributors except one never really addressed the question, instead regurgitating the usual hosannas to British imperial apologists Adam Smith and John Locke. The one exception was historian Forrest McDonald, who wrote an excellent biography of Alexander Hamilton—excellent because McDonald understands the important stuff about political economy and not the neoliberal crap—wrote one of the papers in the book, and his answer, in short, is “not very.” As in, the Constitution does not create a capitalist economy at all. Now, I suspect McDonald pulled his punches, because he did not want to too greatly upset his AEI hosts. McDonald's paper is probably the only completely truthful thing AEI has ever published.)

In fact, the leading philosophers of neoliberalsim are explicit in their attack on the Constitutional mandate to promote the general welfare, arguing it is “the slippery slope to the tyranny of the nanny state.” As Friedrich von Hayek titled his 1944 paean to neo-liberalism, the republican insistence of promoting the general welfare is The Road to Serfdom. Philip Pilkington, in The Origins of Neoliberalism, Part I – Hayek’s Delusion (January 2013) makes the astute observation
Hayek thought that all totalitarianisms had their origins in forms of economic planning. Economic planning was the cause of totalitarianism for Hayek, rather than the being just a feature of it. Underneath it all this was a rather crude argument. One may as well make the observation that totalitarianism was often accompanied by arms build-up, therefore arms build-ups “cause” totalitarianism.
Pilkington then really lowers the boom by excerpting Mark Ames, from The Exiled, January 2011, in  All Pain, No Gain: A Brief History of “Austerity Program” Massacres & Disasters on how the economic ideas of von Mises and von Hayek led to economic calamity in Germany in the 1920s, and the consequent rise of nazism:
Von Hayek and his fellow Austrian aristocrats who were forced to flee from the fruits of their economic programs, did a complete revision of history and retold that same story as if the very opposite of reality had happened. Once they were safely in England and America, sponsored and funded by oligarch grants, hacks like von Mises and von Hayek started pushing a revisionist history of the collapse of Weimar Germany blaming not their austerity measures, but rather big-spending liberals who were allegedly in charge of Germany’s last government. Somehow, von Hayek looked at Chancellor Bruning’s policies of massive budget cuts combined with pegging the currency to the gold standard, the policies that led to Weimar Germany’s collapse, policies that became the cornerstone of Hayek’s cult—and decided that Bruning hadn’t existed.

In USA, neoliberals who openly self-identify as political conservatives or libertarians don't even have sense enough to try to hide their hideous historical holocausts, like von Hayek and von Mises try to. I have already discussed the importance and significance of the mandate to promote the General Welfare in the USA Constitution. The Confederacy (yes, that Confederacy, of the mid-1800s, dominated by an oligarchy of rich slaveholders who decided to tear apart the Union in a fratricidal war rather than do a single thing that might lead to eventual elimination of slavery) largely copied the USA Constitution, but, crucially, eliminated mention of the General Welfare from its Constitution. The libertarian von Mises Institute has a June 1992 article on its website by Randall G. Holcombe which explicitly states this was an important “improvement”:
But the differences in the documents, small as they are, are extremely important. The people who wrote the Southern Constitution had lived under the federal one. They knew its strengths, which they tried to copy, and its weaknesses, which they tried to eliminate. One grave weakness in the U.S. Constitution is the "general welfare" clause, which the Confederate Constitution eliminated….
The Southern drafters thought the general welfare clause was an open door for any type of government intervention. They were, of course, right.
Immediately following that clause in the Confederate Constitution is a clause that has no parallel in the U.S. Constitution. It affirms strong support for free trade and opposition to protectionism: "but no bounties shall be granted from the Treasury; nor shall any duties or taxes on importation from foreign nations be laid to promote or foster any branch of industry." ….The Confederate Constitution prevents Congress from appropriating money "for any internal improvement intended to facilitate commerce" except for improvement to facilitate waterway navigation. But "in all such cases, such duties shall be laid on the navigation facilitated thereby, as may be necessary to pay for the costs and expenses thereof..."
According to Wikipedia, Holcombe “is a Research Fellow at The Independent Institute, a Senior Fellow and member of the Research Advisory Council at The James Madison Institute, and past president of the Public Choice Society. From 2000 to 2006 he served on Governor Jeb Bush's Council of Economic Advisors.” (Emphasis mine.)

So much for the conservative and libertarian brands of neoliberals. What about those neoliberals who self-identify on today's accepted political spectrum as liberals or even progressives, such as Barack Obama and the Clintons? In The Origins of Neoliberalism, Part II – The Americanisation of Hayek’s Delusion, Pilkington details how the ideas of neoliberalism came to completely dominate the economics profession and academia. (Also see the July 2009 Adbusters—the people who conceived of Occupy Wall Street—attack on the leading economics textbook, authored by Harvard economist and head of George W. Bush Jr.'s Council of Economic Advisors, H. Gregory Mankiw.) The result is that very, very few people have been exposed to, let alone learned, any alternative to the economic nostrums of neoliberalis. It is not that Obama and the Clintons have a malignant intent to impose economic ruin on their country and fellow countrymen, it's just that they are profoundly ignorant in matters of political economy—and, I would venture to guess, the history of republicanism. As William Neal explains, it is this socially pervasive indoctrination in neoliberalism that prevents "almost the entire Democratic Party short of Senator Sanders and a few members of the Progressive Caucus" from pushing for such things as a government direct jobs program. They simply accept the "common wisdom"
that “only the private sector can create jobs.” In order to believe this fiction, one does indeed have to bury the history of the New Deal, which is the still barely breathing historical legacy which refutes it (along with the domestic production record during World War II), the Civilian Conservation Corps and the WPA’s public work projects now nearly erased from citizen memory.
The problem neoliberalism confronts us with is the means by which a people decide and carry into practice their preferred vision for their economic destiny as a nation. If the neoliberals are correct, then there is no room for visionaries of a better future for everyone, because the purest collective expression of the wills of all individual are the sum of transactions in the economic markets. At the time of the Revolution and the writing of the Constitution, this was known as Bernard Mandelville's "private vices lead to public virtue," which became Adam Smith's "invisible hand." And every book I've read about these matters noted that Americans at the time repeatedly and emphatically rejected Mandelville's idea.

In a sense, the past half-century of theoretical and policy dominance by neoliberalism has been a colossal social experiment in replacing the public virtue of republicanism, with the economic liberalism of a market economy. By any measure I care about, the experiment has been a disastrous failure. A solid majority of citizens have repeatedly told pollsters they desire an end to a dependence on fossil fuels, and a solution to the problem of climate change, but no effective responses have been delivered from a political system held in thrall to neoliberal ideas. The very idea of government intervention into the economy to achieve such goals is held by the neoliberal ideologues to be a mis-allocation of resources and an encroachment by government on the "liberties of the people" But if the citizens cannot use their government—the government that supposedly derives its powers from their consent, and which therefore professes its sovereignty to reside in the people—to impose their will on "the market," then what instrument do they have to decide their own destiny?

Neoliberalism is the new justification for the newly arisen class of corporatist oligarchs and plutocrats who are enraged that the promotion of the general welfare by modern sovereign nation-states involves laws and regulations which “stifle” their “business opportunities” and “economic creativity.”

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